Organizational, people and cultural issues in cross-border M

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Organizational, people and cultural issues in
cross-border MA

• Brigid Sutcliffe
• Siddall Company
• World Services Group
• 11 April 2008
• E-mail brigid.sutcliffe_at_siddall.co.uk
• Website www.siddall.co.uk
• Tel [phone]

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About Siddall Company
Founded in 1979
Making cross-border mergers acquisitions work
Specialist management consultancy
Engagements in Europe, US, China, India Africa
Member of Institute of Business Consultancy
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Structure

• Context The MA landscape
• MA deals Organizational, people and cultural
  problems
• How can acquirers avoid the problems and increase
  the chances of success?

4
MA is still an essential part of corporate
strategy

• Huge MA volumes
• Value of global MA in 2006 was 3.5 trillion
• 50 is cross-border MA
• Possible impact of the credit crunch?
• MA is an important tool in corporate strategy to
  achieve
• Growth
• Geographic expansion / presence in emerging
  markets
• Expansion into adjacent or upstream/downstream
  product markets
• Access to new technologies
• Cost reduction/efficiencies

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MA A triumph of hope over experience

• MA activity is growing fast but the success rate
  continues to be low
• Fewer than 25 increase shareholder value
• More than 90 of mergers are not fully successful
  
• Over 70 of managers believe that cross-border
  deals are harder than domestic transactions

Source Hay Group Report Dangerous Liaisons'
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Focusing on soft factors improves chances of
success
Focus of effort improvement in chances of
success relative to average MA deal
Soft factors
Source KPMG report on MA
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Structure

• Context The MA landscape
• MA deals Organizational, people and cultural
  problems
• How can acquirers avoid the problems and increase
  the chances of success?

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The MA Process What can go wrong
Strategy
Transaction
Integration
Evaluation

• Unclear strategy
• Wrong target

• Insufficient focus on people and cultural issues
• Inadequate communication/ engagement
• Integration plan too top down and
  insufficiently flexible
• Lack of prioritisation clear milestones

• Victory declared too early, leaving underlying
  problems unresolved
• No systematic evaluation of how integration is
  working on the ground

• Overpaid for target
• Excessive focus on financial and legal due
  diligence
• Incomplete due diligence esp. people cultural
• Planning doesnt start early enough

Typical issues
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Reasons for MA failure

• Critical omissions in due diligence and
  post-merger integration strategies
• Firms prioritise financial and systems due
  diligence and not intangibles
• Insufficient focus on intangibles (business
  culture, human capital, organisational structure
  and corporate governance) makes failure more
  likely
• Result Lack of engagement and commitment
• Over 75 of acquired company employees opposed
  their mergers, and half of them did so actively
• 30 of business leaders were dissatisfied with
  the post-merger climate

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How culture clashes scupper MA deals Examples

• Some high profile examples Wal-Mart in Germany,
  Daimler/Chrysler
• Acquisitions of founder-managed businesses
• Existing culture may be deeply embedded,
  idiosyncratic and personality-based
• Acquisitions by low-margin, volume businesses of
  high-margin, customised businesses
• Very different people, focus, KPIs etc
  (Ford/Jaguar, Ford/Volvo)
• Acquisitions of marketing-led businesses by
  engineering-led businesses (BP/Burmah Castrol)
• Apparently similar businesses with very different
  and embedded national or other cultures
• Insufficient effort put into understanding
  differences
• Insufficient effort put into integrating the
  businesses
• Deutsche Bank/Morgan Grenfell

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MA Integration Diagnostic Tool
Differences in national cultures
Management capability
Culture
Differences in business cultures
HR processes
Leadership People
Language problems
Importance of people
Extent of integration
Governance and decision making
Organisational structure processes
Structure and processes
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Good management of soft factors builds value

• Cisco
• Pro-active employee retention, including top
  management and buddy system
• Communicate a vision of the merged entity and
  role for the targets employees
• Communicate the advantages resources, autonomy,
  part of a winning team
• Result Most acquisitions have added value to
  Cisco
• Renault-Nissan
• Obstacles to success language, decision-making
  processes, communications patterns,
  accountability systems and labour/management
  relations
• Integration plan aimed at mitigating the cultural
  backlash and planning recovery
• Result Nissan business was returned to profit

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Structure

• Context The MA landscape
• MA deals Organizational, people and cultural
  problems
• How can acquirers avoid the problems and increase
  the chances of success?

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Framework for success
Culture
Leadership People
Integration Plan Communication engagement
Strategy Context
Organisational structure processes
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Framework for success

• Management capability
• HR processes (remuneration, performance bonuses,
  induction/recruitment, career development)
• Key characters/ stakeholders
  (influencers, unions)
• Power map of key stakeholders

Culture
Leadership People
Organisational structure processes
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Power map
A
B
High
C
Power level
E
D
G
Low
F
Decreasing
Increasing
Trend
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Framework for success

• Values and how they are lived
• Corporate ethics
• Interpersonal relationships (individuals/meetings)
  
• Languages
• Decision making process
• Conflict resolution
• Taboo subjects/ no go areas
• Resistance to change

Culture
Leadership People
Organisational structure processes
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Culture gaps
Cultural dimensions rating
Acquirer Target
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Framework for success
Culture
Leadership People
Organisational structure processes

• Organisational structure
• Processes
• Governance
• Customer relationships
• Communications

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Alternative organisational structures
Independent finance reporting line
Reporting to local CEO
Board
Audit committee
Board
Audit committee
Board
CEO
CEO
CFO
Group Executive
CFO
CEO
CEO
CEO
CFO
CEO
CFO
Divisions
CFO
CFO

• Finance function reports through the business
  line
• Network of finance and control relationships to
  Group CFO

• Local CFOs report directly to Group CFO
• Solid reporting lines
• Business units unable to exert undue influence on
  BU level CFOs

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We help to manage the soft factors
Strategy
Transaction
Integration
Evaluation
Evaluation
Integration planning implementation
Organisational and cultural due diligence
Pre-deal

• Soft factors
• Leadership people
• Culture
• Organisational structure processes

Post merger health check
Post-deal
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Organisational and cultural due diligence

• Process (depending on access to targets
  management and employees)
• Data room / desk research Focus groups
• Face to face interviews Surveys
• Telephone interviews
• Output (based on available information)
• Written report providing objective review of
• Important people issues
• Cultural fit of acquirer and target
• Gap analysis
• Issues that may create conflict in the new
  organisation
• Key areas to focus on during integration process
• Proposed outline organisational structure for the
  new organisation
• Communication priorities
• Benefits
• Identification of key soft factors in the deal
• Planning of immediate post-acquisition actions
  (communication, retention etc)
• Plan communications programme to manage
  expectations and contain anxiety

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Success factors for integration planning and
implementation

• General
• Cross-party integration teams (from acquirer and
  target)
• Communicate, communicate, communicate
• Leadership people
• Selection of top management team (new teams are
  more successful)
• Leadership team communicates the strategy and
  demonstrates the behaviours for the new entity
• Reduce uncertainty, explain the logic for the
  acquisition
• Listen, listen, listen
• Culture
• Celebrate the past
• Recognise cultural differences, dont
  over-integrate
• Organisation structure processes
• Clarify roles and responsibilities
• Adapt or adopt governance

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We help to manage the soft factors
Strategy
Transaction
Integration
Evaluation
Evaluation
Integration planning implementation
Organisational and cultural due diligence
Pre-deal

• Soft factors
• Leadership people
• Culture
• Organisational structure processes

Post merger health check
Post-deal
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Post-merger health check

• Process
• Desk research Focus groups
• Face to face interviews Surveys
• Telephone interviews
• Output
• Written report providing objective review of
• Current state of cultural fit between acquirer
  and target
• Unresolved issues, misunderstandings and cultural
  differences that are preventing successful
  integration
• Key areas of conflict and their underlying
  sources
• Lessons learned (successes and failures)
• Priorities for future actions
• Recommendations for implementation
• Benefits
• Identification of persistent underlying people
  and cultural issues and differences
• Planning of remedial actions (communication,
  management actions etc)

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Case study Post-merger health check
The client International chemical specialities
manufacturer with a turnover of 500m operating
in over 30 countries
The problem They had recently acquired a
US-based global company, which would enable them
to strengthen their presence in a different
market segment. The integration of the two
companies was well planned and seemed to have
been well executed. However, after some months,
it became clear that there were serious tensions
over the soft factors

• Persistence of them and us culture
• Poor communication across the two companies
• Confusion over roles and responsibilities
• Each organisation felt that its way was superior,
  both were unwilling to change
• Poor morale which could have resulted in some key
  senior people leaving

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Case study Post-merger health check continued
The health check process We conducted
confidential interviews with the senior
management team from both companies. This
process allowed us to gain valuable insights into
their concerns about the unresolved issues,
misunderstandings and cultural differences which
were getting in the way of a successful
integration. These issues were analysed and an
objective report was presented, highlighting
peoples experiences of the integration process
between the two companies, clearly identifying
the specific difficulties and problem areas
behind the tensions.

• The outcome
• Underlying problems identified and objectively
  articulated early
• Platform created to enable both parties to
  address the problems
• Clear process developed to resolve them
• With one exception, the original management team
  stayed on
• The acquisition is now a successful autonomous
  division within the Chemical specialities group

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Conclusions

• MA is an essential tool of corporate strategy
• Focus on soft factors gives a better chance of
  success
• Every deal is different the best acquirers have
  a flexible approach

Integration Plan Communication engagement
Culture
Leadership People
Strategy Context
Organisational structure processes
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Siddall Company - Making cross-border MA work
Any questions?